The 10-year benchmark 7.26% 2032 bond yield is expected to stay in the 7.30%-7.36% band after closing lower at 7.3579% on Monday, a trader with a private bank said. The yield ended at its lowest level since Feb. 16, posting its biggest single-session drop since Oct. 4. "The complete picture with regards to Fed rate hikes has turned upside down after the bank collapse, and with bets of rate cuts being forwarded, yields in India should continue to follow their U.S. counterpart," the trader said. U.S. Treasury yields dropped further on Monday as the collapse of Silicon Valley Bank prompted investors to drastically pare back expectations of a big Federal Reserve rate hike next week and seek the safety of government debt. The two-year yield, which is a closer indicator of interest rate expectations, eased below the 4% mark for the first time since October, crashing 56 basis points (bps) on Monday. It ended at 4.03%.
This is its biggest single-session fall since October 1987. The two-year yield has plummeted over 100 bps in the last three sessions till Monday.
The 10-year U.S. yield fell 18 bps on Monday and was down 46 bps in the last three sessions. Traders will now await U.S. inflation data due later in the day.
The Fed funds futures are now pricing in a 70% chance for a 25-bps hike in March, and 30% for rates being left unchanged. The odds for a 50-bps hike had risen to 68% last week after Fed Chair's inflation remarks. Meanwhile, India's retail inflation eased to 6.44% in February but remained above the central bank's target, reinforcing April rate hike expectations. KEY INDICATORS: ** Brent crude futures contract was down 0.5% after falling 2.4% in previous session ** 10-year U.S. Treasury yield was at 3.5638% and the two-year note at 4.0989% ** Indian states to raise 322.33 billion Indian rupees ($3.92 billion) via sale of bonds ($1 = 82.2350 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman)
